Friday, May 11, 2007

Ezra Holdings Limited - A Brief Review

Just a short, succinct review on Ezra Holdings. There has been not much significant newsflow this FY so far, apart from the listing of EOC Pte Ltd, 1H 2007 results release and their order of the 2 30,000 bhp Rolls-Royce AHTS. The company has been quietly and steadily building up their fleet of AHTS vessels, and the heavy accommodation barge and pipelay vessel are slated for delivery this FY as well. There was some concern from yours truly about Ezra's intention to order more vessels to beef up their fleet in preparation for FY 2009, as the company usually forecasts demand about 2 years in advance and places orders for vessels to cater to that demand.

There have been reports written of the buoyant oil and gas slowing down in FY 2009, as the supply of oil rigs and oil drilling vessels outstrips demand. This would surely adversely impact Keppel Corp and SemCorp Marine first, the effect will then cascade down to ship builders and oil and gas support vessels such as Labroy Marine, ASL Marine, Pan-United Marine, Ezra and probably even second liners like Jaya Holdings and CH Offshore. There is also some concern about AHTS over-supply by FY 2009 as I see many of Ezra's competitors such as Haliburton and Prosafe ordering AHTS vessels for future use. This is cause for concern as it means that charter rates will gradually decline after peaking in FY 2008. Also, a more pressing worry is that demand may taper off so much that part of Ezra's fleet lays idle as its AHTS will not be in use any more. Of course, this is the worst case scenario as we all know that oil exploration activities are still very much in demand in the world, and are slowly moving towards Asia and Australia as the oil fields in the Middle East start to dry up. Furthermore, as the supply of FSOs and FPSOs builds up, there will still be demand for support vessels to ferry equipment and personnel to/from the vessels and rigs.

But I digress. Back to the company proper, they had recently bought 21% of SGX-listed Nylect Technologies Limited (soon to be renamed Ezion Holdings Limited). Accordingly, EOC also has signed an agreement for services to be rendered to Nylect and this sets up the stage for a long-term partnership between the two companies. The fact that Ezra had bought into Nylect at 33.1 cents/share is also good assuming Nylect can scale up its business to become a player in the oil and gas industry. Equity accounting will ensure that any profits earned by Nylect be recognized as "share of profits from associated companies" on Ezra's consolidated Profit and Loss Account. It was a wise move to divest Uni-Bulk (they used to hold 30% of it) as it was loss-making, and to free up the cash to purchase a more worthwhile investment. Still, a lot hinges on the future performance of Nylect, and I dare not be too optimistic at this point till I see some good NUMBERS from Nylect.

Ok, well, so much for a SHORT summary. Today also saw Lloyd Investment becoming a substantial shareholder of Ezra with a 5.01% stake in the company. Normally, I don't really watch for funds buying into my companies, but I do take note of them in passing. The company should be announcing its EGM pretty soon for the approval of the bonus issue, which should see its issued share capital doubling from 289 million shares (after the share buy-back) to 578 million shares.

The listing of EOC also helps Ezra to raise US$43.3 million to fund its fleet expansion and for working capital. A closer reading of the announcement shows that the listing will only be complete close to the end of the year, as EOC is only listed on the OTC section of the Oslo Bourse. It will be moved to the Main Board by the end of the year, and Ezra plans to dividend out shares in EOC to shareholders such that its stake falls below 50%. Frankly, I think this is the first SGX listed company to dividend out shares in a company listed on a Norwegian bourse ! Key questions will be: how are they going to go about this, and how will shareholders obtain the shares ? Will they be held in trust by the brokerage, or by CDP ? Also, how will the shares be bought/sold ? Interesting questions to ponder about and we can either wait for further news from Management, or ask them during the EGM maybe ?

One final thought before I end off this post - are the 30,000 bhp AHTS in demand ? Ezra only orders vessels if it has firm charter contracts on hand for them, as assured by Mr. Chan Eng Yew whom I spoke to during the AGM. Thus, I assume that the 2 Rolls-Royce size AHTS have charter contracts waiting to be signed, because the company did not disclose any contract value. As the vessels are suited for deep sea oil exploration, I would say Ezra is forward looking as exploration is gradually shifting towards deep waters (I mentioned in an earlier post that Mr. Raymond Goh of Swiber Holdings Limited told me this). There is also some speculation that they may order one more 12,000 bhp vessel but this cannot be confirmed; and that Lionel Lee said in an interview that the company looks to capture another FPSO contract within the next 18 months (i.e. by the end of FY 2008). I am sincerely hoping that the company does not "over-stretch" themselves as they have now been thrust into the global league, and will thus compete with the major players. Somehow, competition can either make one stronger or weaker, and the tenacity of the Management to weather the challenges will show in its earnings, revenues and margins.

Good luck to all shareholders of Ezra, and have a great weekend !

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